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More Litigation Coming in Fight Over IRS Seized Assets Data (1)

Nov. 1, 2019, 4:54 PMUpdated: Nov. 1, 2019, 6:43 PM

A fight over records on IRS asset seizures is headed back to a trial court after a D.C. circuit panel ruled there are important issues still to be worked out.

The U.S. Court of Appeals for the District of Columbia Circuit panel reversed a decision by the U.S. District Court for the District of Columbia that gave the IRS a win without a trial.

The case concerns a Freedom of Information Act request that the Institute for Justice submitted in March of 2015, asking for all records from 2000 to the present in an IRS tracking system known as the IRS Asset Forfeiture Tracking and Retrieval System (AFTRAK). The agency uses the system to monitor IRS-seized assets from private citizens.

The agency initially gave the Institute what it described as the system’s standard report, with many redactions. After the IRS disclosed additional information, District Judge Trevor McFadden concluded in 2018 that the FOIA request had been satisfied.

But the appeals panel wasn’t so sure.

There are still disputed questions about material facts in the case, including whether the report the IRS generated covers the request for all records contained in AFTRAK and whether AFTRAK should be classified as a database, said Senior Circuit Judge Stephen Williams on Nov. 1.

The Dispute

The IRS has claimed that AFTRAK is a web-based application system that compiles information from databases but isn’t itself a database, so the information request doesn’t include the sources AFTRAK draws from in generating its standard reports.

The panel’s decision noted, however, that an IRS manual describes AFTRAK as a database.

The panel also said the IRS failed to tailor some of its redactions to the categories of information it has a right to protect, although the panel left in place other redactions that the Institute hadn’t challenged on appeal.

The panel didn’t address the district court’s decision not to allow the Institute for Justice additional discovery, leaving the district court to consider that question again.

“Absent further evidence to the contrary, it seems safe to say that if AFTRAK is a database, the Institute is entitled to more than has been delivered, very possibly much more,” Williams said.

Lawmakers have scrutinized the agency’s authority to seize property that has been structured to potentially avoid reporting requirements. The Taxpayer First Act (Pub. L. 116-25) blocks the agency from such seizures if it can’t prove the owner’s criminal intent.

“We think ultimately this will lead to us and the public getting a better understanding of what the IRS has been doing with civil forfeiture,” said Dana Berliner, senior vice president at the Institute for Justice.

Williams was joined in his opinion by Circuit Judges Cornelia Pillard and Neomi Rao.

The IRS didn’t immediately return a request for comment.

The case is Institute for Justice v. Internal Revenue Service, D.C. Cir., No. 18-5316, 11/1/19.

To contact the reporter on this story: Aysha Bagchi in Washington at abagchi@bloombergtax.com

To contact the editor responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com